EDITORIAL Singapore at 50 offers lessons for Australia

by Peter Westmore

News Weekly, June 6, 2015

Small but of global significance, Singapore is one of the most developed nations in the world. According to official statistics, its population of 5.5 million people now has a GDP per capita of $US55,000 ($70,000), its life expectancy is 82 and it has a vibrant manufacturing sector – in contrast to the declining industry in Australia.

Even among politically aware Australians, these facts have been obscured by reports critical of the lack of press freedom and restrictions on political dissent in Singapore.

Today Singapore offers a striking contrast to what it was 50 years ago, when it became independent of Malaysia. As the World Bank has reported, in 196o Singapore was a small trading port with high levels of unemployment and poverty.

An estimated 70 per cent of Singaporeans lived in unsanitary and overcrowded conditions, and a third of its people squatted in slums on the city fringes. Unemployment was 14 per cent, gross domestic product (GDP) per capita was just $US516 ($650), and half the population was illiterate.

Astonishing

The cause of its astonishing turnaround deserves wider consideration, particularly in Australia, which in recent decades has struggled with historically high unemployment, low economic growth (despite the mining boom), and the decline of three of the foundations of its economy: agriculture, mining and manufacturing.

No doubt part of the explanation lies in the hard work of the Singaporean people, predominantly ethnic Chinese, though there are also a large number of Indians, Malays and others.

But perhaps the most important cause has been the economic policies pursued by Singapore’s founder, Lee Kuan Yew, and his successors, based on a clear long-term strategy to lift Singapore out of poverty: first to become self-reliant, and then to become a powerhouse of economic development in the region.

Although Lee Kuan Yew was regarded as being a left-wing nationalist – a result of the alliance in the 1950s of his Peoples Action Party with communists in the independence struggle – he cleaned up corruption and established an Economic Development Board to encourage local investment and make Singapore an attractive destination for foreign investment.

With low taxes on companies, Mr Lee encouraged high-technology companies to invest, as well as expanding petroleum refining, ship and aircraft maintenance and repair, chemical production and processing of rubber.

The result was a rapid expansion of the economy and a better skilled workforce. In the first 35 years after independence, Singapore’s economy grew at an annual rate of 8 per cent.

It emerged unscathed from the Asian financial meltdown of the late 1990s, and the Global Financial Crisis of 2007-08, which has crippled some European countries to the present day.

Separately, Mr Lee set out to mobilise the savings of the people through the Central Provident Fund, the compulsory savings scheme introduced by the British in the 1950s to make people save for their own retirements.

Under Mr Lee’s leadership, the fund was expanded to the point where it now takes 20 per cent of employees’ salaries, and where employers contribute a further 16 per cent into personal accounts which are managed by an independent board.

The Central Provident Fund is not only the major source of retirement income in a country where government pensions are limited, but it also provides capital for young people to buy homes and to meet the growing needs for education, medical insurance and hospitalisation. While Australia’s compulsory superannuation scheme is good, it is just a shadow of what Singapore’s Central Provident Fund provides.

A further major initiative was the establishment of government-run sovereign wealth funds, Temasek Holdings and GIC Private Limited, which have funded much of Singapore’s industrial development as well as its national infrastructure.

On a day-to-day basis, they operate completely independently of the government, but their boards are government-appointed. These funds have assisted the expansion of major Singapore corporations, such as the government-owned Singapore Airlines, and have made strategic investments overseas, including Optus and Virgin Airlines in Australia.

Contrary to the mantra of “economic rationalists” who oppose any government role in the economy, Singapore has embraced the idea that national development requires direct government financial involvement, but not coming from the national budget.

Government-established corporations also play a substantial role in Singapore’s domestic economy. Fully and partially state-owned enterprises operate on a commercial basis and are granted no competitive advantage over privately owned enterprises.

State ownership is prominent in strategic sectors of the economy, including telecommunications, media, public transportation, defence, port and airport operations, banking, shipping, airline, infrastructure and real estate.